From the French franc to the euro, is there an economic impact for the CFA franc zone countries? A ‘bias-corrected’ synthetic control method

This paper assesses the impact of pegging the CFA franc to the euro – at a fixed parity – on real GDP per capita in the West African Economic and Monetary Union (WAEMU) and the Central African Economic and Monetary Community (CAEMC) countries. Using a set of 35 annual country-level panel data from 1980 to 2019, we apply the 'bias-corrected’ synthetic control estimators to create a 'synthetic country’ (a counterfactual) for each treated CFA country. The counterfactual is a weighted average of comparable countries that best reproduces the initial trends or characteristics of the treated country before the treatment occurs. Except for Equatorial Guinea, which shows a significant positive difference between its real GDP per capita and counterfactual, our results suggest that, overall, there is no statistical evidence that real GDP per capita has increased relative to what it would have been in the absence of the pegging of the CFA to a hard currency following France’s accession to the eurozone.The aim of this paper is to address the lack of relevant literature and empirical results on the impact of the euro changeover on CFA zone economies, using the GDP per capita indicator. This evaluation is interesting at least for two reasons. First, to strengthen the debate with solid quantitative arguments, based on recent impact assessment techniques, and to bridge the positions. Second, such an assessment could guide CFA zone policymakers on appropriate choices, going beyond political-historical and/or strategic reasons, rigorously considering the performance of their countries’ economies related to the pegging of the CFA Franc to the Euro.